Tesla joins the $US1 trillion club on landmark Hertz deal

Tesla joined an elite group of companies with market values of at least $US1 trillion ($1.3 trillion) on Monday (US time) after car rental giant Hertz placed an order for 100,000 of its vehicles.

The maker of the Model 3 sedan – the top-selling electric car worldwide – is now the second fastest company ever to reach this mark, taking just over 11 years since its public debut in June 2010. Facebook did it faster, although its market capitalisation is now below $US1 trillion as the stock has sold off over the past two months. The other US-listed members of the trillion-dollar club include Apple, Microsoft, Alphabet and Amazon.com.

Tesla has made Elon Musk the world’s richest person.Credit:AP

Tesla shares rose as much as 9.8 per cent Monday on news of the Hertz order, briefly pushing its market value past $US1 trillion. It’s a key milestone for the carmaker whose shares have been on a tear amid a global shift to electric vehicles. About two-thirds of founder Elon Musk’s net worth is tied directly to shares and options in the electric-car company, of which he is co-founder and chief executive officer.

Musk’s personal fortune jumped by almost $US29 billion to $US281 billion as filings showed a fresh tranche of options in his moonshot pay package vested.

It’s among the biggest one-day gains in the history of the Bloomberg Billionaires Index, second only to Chinese tycoon Zhong Shanshan’s $US32 billion surge last year on the day his bottled-water company, Nongfu Spring Co, went public.

Musk is increasingly pulling away from his fellow mega-billionaires when it comes to the size of his fortune. Amazon.com Inc.’s Jeff Bezos ranks second with $US193 billion, according to the Bloomberg index.

Even before the Hertz deal, Tesla shares have climbed in recent weeks. The auto maker’s stock price is up more 40 per cent this year, almost double the gain of the S&P 500 Index, as investors continue to reward green technologies.

A surge in Tesla stock isn’t the only source of wealth gains for Musk. The seventh tranche of Musk’s massive 2018 stock option package vested in the third quarter, according to a regulatory filing on Monday, adding about $US8 billion to his net worth.

Tesla’s addition to the coterie of megacap technology names comes as the automotive industry is on the cusp of a massive transformation, with electric vehicles expected to take the place of gas-driven cars globally. The company and its charismatic and often controversial co-founder are seen as one of the main driving forces behind this shift.

Tesla is now the second fastest company ever to reach the $US1 trillion mark, behind only Facebook, taking just over 11 years since its public debut.Credit:Bloomberg

The company’s shares have been on a streak over the past five months, climbing more than 75 per cent since mid-May. However, the rally got a big boost this month amid a flurry of encouraging headlines: strong third-quarter earnings and deliveries, the Hertz order and a report that the company’s Model 3 was the top-selling vehicle in Europe last month.

“Tesla is the leader in EV manufacturing, batteries and autonomy,” Morgan Stanley analyst Adam Jonas wrote in a note on Monday. “Tesla also has a suite of enabling technologies and other businesses that would allow the company to be an auto and energy champion in the long run.”

The push toward electrifying all modes of transportation – especially cars, trucks, buses and vans – has rapidly intensified this year, with governments pledging to find solutions for the climate-change crisis. Countries across the world have announced policies to lower carbon emissions and incentivise corporations to move toward greener technologies. The entire electric-vehicle ecosystem – including carmakers, battery developers and charging-network operators – has been climbing as a result.

“The outlook for EV adoption is getting much brighter, due to a combination of more policy support, further improvements in battery density and cost, more charging infrastructure being built, and rising commitments from automakers,” Bloomberg New Energy Finance noted in a September report. BNEF estimated that passenger EV sales will increase sharply in the next few years, reaching 14 million in 2025 compared with 3.1 million in 2020.

The Hertz deal comes on the back of a flurry of encouraging developments at Tesla.Credit:Bloomberg

Rivals are circling

Yet, some say those bright and shiny growth numbers still do not fully justify Tesla’s mammoth size. It is not only the biggest automaker in the world, its market capitalisation is significantly bigger than all of the top car companies taken together. However, Tesla still manufactures only a fraction of the number of cars that some of these companies, like General Motors, produce.

“We acknowledge Tesla is executing impeccably, but this does not alter our view Tesla is egregiously overvalued,” Roth Capital Partners analyst Craig Irwin wrote in a note on October 21, saying that the company’s current valuation appears to rest on the “specious assumption that the hundreds of EVs slated for launch by 2025 will all be flops.”

Competition is indeed building up. After being on the sidelines for years, with mostly hybrid or just a few electric cars in their lineup, almost all major legacy auto companies this year have announced aggressive plans for making EVs and developing the required ecosystem that includes batteries and charging-station networks.

Bullish investors and analysts, on the other hand, say Tesla should not be compared to its auto peers at all. It is more like a technology company, they argue, and is correctly valued accordingly.

Tesla shares currently trade at 172 times their estimated 2021 earnings, compared to 34 times for the NYSE+ FANG Index, whose other nine members include Nvidia, Alphabet, Apple, Twitter , Facebook, Amazon.com, Netflix, Alibaba Group and Baidu.

Bloomberg

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